A guide to financial management principles and activities to achieve effective financial management.
Financial Management Principles and Activities
A guide to financial management principles and activities that can be adopted to achieve a level of effective financial management.
- Essential – basic requirements to the operations of not for profit organisations (as below)
- Recommended – as standard practice for effective not for profit organisations (as below)
Websites providing information and assistance to not for profit organisations
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Essential Financial Management Practices
Basic requirements to the operations of not-for-profit organisations:
- Follow accounting practices that conform to Australian Accounting standards.
- Have systems in place to provide the appropriate information needed by staff and board to make sound financial decisions and to fulfil Australian Taxation Office requirements.
- Develop an annual comprehensive operating budget which includes costs for all programs, management and fundraising and all sources of funding. This budget is reviewed and approved by the Management Committee.
- Prepare cash flow projections monthly.
- Reconcile all cash accounts monthly.
- Have a review process to monitor that they are receiving appropriate and accurate financial information from internal processes.
- Monitor compliance with service agreements by a designated staff member of the service.
- Employees’ payroll is prepared following appropriate procedures and service policy.
- Persons employed on a contract basis meet all Australian Taxation Office requirements for this form of employment.
- Records are kept for audit control purposes.
- Have documented a set of internal controls, including the handling of cash and deposits, approval for over spending and disbursements.
- Have a policy identifying authorised cheque signatories and the number of signatures required on cheques in excess of specified dollar amounts.
- All expenses of the service are approved by a designated person before payment is made.
- Have suitable insurance coverage which is periodically reviewed to ensure the appropriate levels and types of coverage are in place.
- Ensure employees, management committee members and volunteers who handle cash and investments adhere to appropriate processes and procedures to help ensure the safeguarding of assets.
- Prepare and submit Australian Taxation Office documents on a timely basis within prescribed time lines.
Recommended Financial Management Practice
Recommended financial management practices for not-for-profit organisations.
- Periodically prepare financial statements including the Balance Sheet (or statement of financial position) and Statement of Revenue and Expenses which are clearly stated and useful for the Management Committee and staff.
- Prepare financial statements on a budget versus actual and/or comparative basis to achieve a better understanding of the organisation’s financial position.
- Periodically forecast year-end revenues and expenses to assist in making sound management decisions during the year.
- Have a written financial policy and procedures manual and follow it.
- Have a written policy related to investments.
- Capital needs are reviewed at least annually and priorities established.
- Have established a plan identifying actions to take in the event of a reduction or loss in funding.
- Have an annual, independent audit of financial statements, prepared by a certified public accountant (CPA).
- In addition to the audit, the certified public accountant should prepare a management letter containing recommendations for improvements in the financial operations of the service.
- The management committee to be responsible for interviewing and contracting of auditor services.
- The management committee is to review and approve the audit report and management letter and with staff input and support, implements any necessary changes.
- The audit or a service prepared annual report which includes financial statements, is made available to service volunteers, contributors and other interested parties.
- Training is made available for the management committee and other appropriate staff on relevant accounting topics. All appropriate persons are encouraged to participate in various training opportunities.